Multiple Raised Targets National Bank Financial analyst Maxim Sytchev thinks Toromont Industries Ltd.’s third-quarter results displayed “operational execution married with thematic tailwinds.”
“There is always a voice telling one to ‘take profits’ etc. amid rising valuation; while the call is sometimes easier to make for a very stable business oscillating around a mean, for a compounder with a thematic overlay it usually means leaving a lot of capital on the table,” he said in a client note. “We were very encouraged by AVL’s accelerating growth (and very strong margins), stabilizing pricing backdrop in the core business, and resumption of good year-over-year advances in Product Support and strong performance at CIMCO. Hence, we are staying long as the name remains one of the few concentrated betas to play the Canadian infra theme while benefitting from the U.S. data centre buildout via AVL.”
Shares of the Toronto-based industrial company soared 7 per cent on Friday after it reported quarterly revenue of $1.315-billion, down 2 per cent year-over-year and below both Mr. Sytchev’s $1.385-billion estimate and the Street’s $1.384-billion forecast. However, adjusted earnings before interest, taxes, depreciation and amortization of $256-million came in higher than anticipated ($235-million and $245-million, respectively). Adjusted earnings per share of $1.80 was also well above projections ($1.61 and $1.58).
Seeing equipment margins “stabilizing” and product support “poised for an inflection,” Mr. Sytchev called the backlog visibility and margin profile stemming from its acquisition earlier this year of a 60-per-cent stake in AVL Manufacturing Inc., which focuses on power generation and storage enclosures, “highly attractive.”
“AVL delivered strong sequential revenue growth in Q3/25, with the Hamilton facility now operating near full capacity and the Charlotte facility beginning limited production on one of three lines,” he explained. “Management expects Charlotte to ramp through 2026, with hiring and staffing tracking to plan. AVL now contributes $278-million to the Equipment Group backlog (about 30 per cent), with the backlog expected to flow over the next 18 - 24 months. Management confirmed AVL’s margins are ‘quite healthy’ even after adjusting for amortization, and the business is accretive to both margin and EPS for TIH (so at least higher than 20-per-cent EBITDA margins). This reinforces AVL’s role as another structural growth driver for TIH (expected to contribute low-single-digit growth for the combined business) with attractive economics and low execution risk (it was also indicated that AVL’s dividend to minority shareholders will be determined after full-year results in 2026 – which will slightly raise costs), particularly as demand for data centre infrastructure accelerates in the U.S.”
After accounting for improving margins from its Equipment Group segment and “fine-tuning” the impact from AVL, Mr. Sytchev raised his target for Toromont shares to $176 from $164, reiterating an “outperform” rating. The average target is $168.67.
“The quarter saw TIH deliver a big beat on margin, and we expect some of the recent expansion to persist through 2026 and 2027 on inflecting pricing (higher gross margins and solid PS growth) and positive operating leverage on tight cost control,” he said. “We increased near-term CapEx to account for the Charlotte ramp-up, nudged up SG&A intensity given upcoming dividend payments for AVL minority shareholders and moderated NCIB expenditures. We also nudged down the cost of debt and yields on cash to reflect the lower rate environment. Lastly, given the accelerated non-cash expenditures related to AVL, we increased D&A intensity (more so in the next few quarters), which is why our EPS forecasts remained fairly flat.”
Elsewhere, other analysts making target adjustments include:
* Scotia Capital analyst Jonathan Goldman to $175 from $171 with a “sector perform” rating.
“We increased our target price by 2 per cent solely on the back of higher EPS estimates in 2026 as we model a quicker ramp and contribution from the AVL Charlotte facility,” said Mr. Goldman. “We see limited room for multiple expansion with numerous tailwinds priced-in. For context, TIH is trading at 24.5 times P/E on our 2026 estimates vs. WSP at 24.6 times. The E&Cs have better growth prospects, in our view, both organic and strategic, and higher exposure to secular trends, namely AI power demand. We estimate AVL will account for more than 15 per cent of EBITDA in 2026. The E&Cs should also be sooner beneficiaries of nation-building work, but we understand investors wanting to get onside everything CAD infra-related ahead of the November 4 budget announcement. We updated our SOTP analysis, which produces a target price of $175/share, equivalent to 26 times P/E and 14.3 times EV/EBITDA on our 2026 estimates. We remain on the sidelines due to narrow return to target.”
* Canaccord Genuity’s Yuri Lynk to $172 from $160 with a “buy” rating.
“We continue to view Toromont as one of the best compounders within the industrials space. However, with its valuation pushing elevated levels, we believe the stock may have run ahead of fundamentals. While our work points to impressive margin potential at AVL (driving upward EPS revisions), it appears this is increasingly reflected in Toromont’s valuation with its stock 45 per cent higher year-to-date. Meanwhile, construction starts in Quebec and Ontario are expected to remain below 2023 levels for the foreseeable future, while EG backlog declined 20 per cent year-over-year in Q3/2025 (ex. AVL) as market conditions remain uncertain and customer purchasing decisions and activity are somewhat mixed. Risk/reward looks balanced here, in our view,” said Mr. Lynk.
* CIBC’s Krista Friesen to $172 from $168 with a “neutral” rating.